I did a quick read of the conference report on the
College Cost Reduction and Access Act of 2007 (HR 2669)
http://kennedy.senate.gov/imo/media/doc/HR2669_conf_report.pdf
The new name is a blend of the names used in the House
and Senate bills.
The following is a summary of the conference bill, highlighting any
differences between the conference bill and the House and Senate
versions.
I don't think President Bush will veto the bill, as threatened,
because more of the savings are directed at the Pell Grant and the
college affordability index was eliminated. There's enough in the
conference report so that both sides can claim victory. The Democrats
win either way, since a presidential veto gives them a defining issue
for the presidential elections next year.
Mark Kantrowitz
Publisher, FinAid.org
September 6, 2007
1. Lender subsidy cuts. The cuts are closer to the
House version, but delay the increase in risk
sharing until 10/1/2012 and allow exceptional
performers to continue with that status for the
remainder of the year. The details are:
- Cuts special allowance payments by 0.55%
for Stafford and Consolidation loans and
0.85% for PLUS loans for for-profit lenders
effective 10/1/07.
- Cuts special allowance payments by 0.40%
for Stafford and Consolidation loans and
0.70% for PLUS loans for not-for-profit lenders
and state agencies effective 10/1/07. The
not-for-profit lenders must not be owned or
controlled by a for-profit (exception for ELT),
and must have such status and be a Title IV
lender as of 10/1/07 (exception for state agencies).
Note that the greater reduction in SAP for PLUS
is to equalize the SAP rates for PLUS and Stafford
loans.
- Eliminates exceptional performer status
effective 10/1/07 but allows current exceptional
performers to retain that status through the
end of the year.
- Cuts insurance percentage to 95% for all
lenders effective 10/1/2012.
- Increases lender-paid origination fee from 0.50%
to 1.0% effective 10/1/07.
I've updated my analysis of the impact on lender
profitability at
http://www.finaid.org/educators/2007subsidycuts.txt
to reflect these changes. In particular, I estimate the
total impact of the cuts at 65.0 bp to 71.7 bp for
for-profit lenders and 50.0 bp to 56.7 bp for non-profit
lenders.
I expect the impact to be particularly severe on consolidation-only
lenders and marketers, where margins are tighter, and at smaller
lenders who do not service their own loans. Larger lenders will be
better able to weather the changes due to economies of scale and
reduced competition. I believe the lenders will scale back their loan
discounts for new loans starting 10/1/2007 but will not eliminate them
entirely, due to the ongoing need to compete with direct loans.
2. Guarantee agency cuts:
- Cuts guarantee agency collection retention rate from 23% to 16%
effective 10/1/2007.
- Cuts guarantee agency account maintenance fees from 10 bp to 6
bp instead of switching them to a unit cost basis.
3. Pell Grant
- Eliminates tuition sensitivity.
- Does not allow year-round Pell Grants.
- Increases the maximum Pell Grants by $490 for
2008-09 and 2009-10, $690 for 2010-11 and 2011-12,
and $1,090 for 2012-13, an average increase of $218
a year. It keeps the Pell Grant eligibility cutoff
based on the appropriation legislation, which means
that these increases in the maximum Pell Grant will
give more money to current recipients but not expand
the pool of recipients. However, the changes to need
analysis will compensate for that limitation somewhat.
Assuming a baseline max Pell Grant of $4,310 in 2007-08,
this means maximum Pell Grants of
$4,800 in 2008-09 and 2009-10
$5,000 in 2010-11 and 2011-12
$5,400 in 2012-13
4. Stafford Loans
- Subsidized Stafford Loan interest rate cuts accelerated,
reaching 3.4% by 2011-12 instead of 2012-13:
6.8% 2006-2007 and 2007-2008
6.0% 2008-2009
5.6% 2009-2010
4.5% 2010-2011
3.4% 2011-2012
Undergraduate students only.
- Does NOT increase annual and aggregate Stafford Loan limits
as was previously proposed ($7,500 juniors/seniors, $30,500 aggregate).
- Eliminates the 3 year clock on student loan deferments
for members of the armed forces and a 180 day grace period
following demobilization (13 months if they were called
to service within six months of enrollment in college).
Does not eliminate or extend the 3 year clock for other
deferments such as the economic hardship deferment.
5. New Income Based Repayment
- Income-based repayment (IBR) in addition to income-sensitive and
income-contingent repayment, but limits government payment of
unpaid interest to the first three years and only for subsidized
Stafford loans. Any other interest is capitalized at the time
the borrower chooses to end IBR or has payments based on the
standard ten year repayment figure. If a borrower ends IBR, the
monthly payments will be based on the original standard ten year
repayment figure from before they elected to use IBR (i.e., the
capitalized unpaid interest will end up extending the term of
the loan). Balance is forgiven after 25 years (includes economic
hardship deferment within the 25 years for both IBR and
ICR). Effective 7/1/09. One does not need to consolidate to use
income-based repayment. It is available in both FFEL and DL.
(Since it is available without regard to consolidation, it is
possible that a borrower could have loans with multiple
lenders. This will need to be addressed in the regulations,
probably by requiring the IBR cap to be allocated in proportion
to each lender's loan balances, which will entail coordination
among the lenders.) Parent PLUS loans are excluded, but Grad
PLUS, Stafford, Perkins and Consolidation loans are
included. Income based repayment is more generous than income
contingent repayment.
- Public Service Loan Forgiveness available in Direct Loans only.
A borrower in FFELP could obtain this forgiveness by
consolidating into DL. Simpler cancellation provision --
forgivess all of the remaining balance after 120 payments under
standard repayment, IBR or ICR while employed in public service
(i.e., eliminates the $65,000 income cap). It does not include
economic hardship deferment in the 120 payment total, unlike
previous versions of the legislation. Public service includes
government employees, military service and 501(c)(3) tax exempt
nonprofit employees, along with the previous definitions, which
included public safety, law enforcement, public health,
education (including early education), social work in a public
child or family service agency, public interest legal services
(prosecutor or public defender). In effect, borrowers who elect
IBR or ICR and work in public service get the balance forgiven
after 10 years, compared with the 25 year forgiveness for all
others.
- Changes definition of economic hardship deferment to align with IBR,
using 150% of poverty line for family size (IBR is 15% of the
difference between this figure and income) compared to the old
definition of 100% of the poverty line for a family of 2.
6. Auction Pilot Program.
- Just Parent PLUS loans (new borrowers after 7/1/09)
- US Department of Education will specify a minimum set of
borrower benefits but otherwise won't affect the 8.5% rate
parents pay. Lenders are unlikely to offer greater borrower
discounts since competition will be minimal among the two
lenders who win for each state.
- 2 winners per state every 2 years.
- Bid is for special allowance payments. Second lowest bid
prevails.
- Maximum bid of CPR + 1.79%.
- Consolidation loans base SAP on weighted average capped at
CPR + 1.59%.
- 99% guarantee and no lender-paid origination fees.
- Does not consider other alternate market-based mechanisms,
such as direct securitization of loans by the federal government.
- I expect that lenders will bid the cap in all states but
Massachusetts, California and Pennsylvania, and that competition
will drive the SAP in those states to around CPR + 1.30%.
7. Need analysis improvements. Income protection allowance (IPA):
Increases the income protection allowance for students
significantly. Currently the IPA for dependent students
for 2008-09 is $3,080 (increased by 2.8% CPI over 2007-08).
Increases it to
$3,750 for 2009-10
$4,500 for 2010-11
$5,250 for 2011-12
$6,000 for 2012-13
Currently the IPA for independent students without dependents
other than a spouse where two are enrolled (or the student is
single) is $6,220 for 2008-09. Increases it to
$7,000 for 2009-10
$7,780 for 2010-11
$8,550 for 2011-12
$9,330 for 2012-13
Currently the IPA for independent students without dependents
other than a spouse where just one is enrolled is $9,970 for
2008-09. Increases it to
$11,220 for 2009-10
$12,460 for 2010-11
$13,710 for 2011-12
$14,960 for 2012-13
After the first year these represent annual increases of $750
for dependent students, $780 for independent 2-in-school
and $1,250 for independent 1-in-school.
Currently, for independent students with dependents other than a
spouse the IPA is $15,750 in 2008-09 for a family of 2, 1 in college,
with $3,770 per additional family member (NIF) less $2,680 per additional
college student (NIC). These figures would change as follows:
Year Base (2:1) NIF+ NIC+
----------------------------------------------
2009-10 $17,720 $4,240 $3,020
2010-11 $19,690 $4,710 $3,350
2011-12 $21,660 $5,180 $3,690
2012-13 $23,630 $5,660 $4,020
I have not yet examined the details of the tables to see if there
is anything strange going on in the internal numbers. But this does
seem somewhat more generous than the original 10%/year increase.
The amounts are definitely increasing by a flat $470 for NIF and
$330 for NIC and $1,970 for the baseline per year, as opposed to
10% per year. The initial boost is 12.5%, but then the flat annual
increases amount to about a 9% increase in the last year. The net
result is increases that are slightly higher than 10% per year overall.
The reversion to current law after 2012-13 was eliminated in conference.
These changes will have a significant impact on aid eligibility, as
50% of income above the IPA is used to reduce aid eligibility.
Effective 7/1/09.
8. Simplified Needs Test and Auto-Zero-EFC:
For simplified needs and auto-zero-EFC they fix a variety
of problems, including:
- adding dislocated worker
- increasing the window on the alternate
qualification methods from 12 to 24 months
- increasing the income threshold for auto-zero
from $20,000 to $30,000 and adjusts it annually
by CPI from that point onward
The latter is very significant.
Effective 7/1/09.
9. Professional Judgement:
Adds several additional examples of unusual circumstances:
- recent unemployment of an independent student
- dislocated worker
- becoming homeless
Effective 7/1/09 (this was a change in the effective date).
10. Definition of income (taxed and untaxed):
- Strikes welfare benefits, earned income credit, additional child
tax credit, credit for federal tax on special fuels, foreign
income exclusion, and untaxed social security benefits from the
definition of untaxed income and benefits, meaning that these
will no longer be considered in need analysis. This eliminates
Worksheet A from the FAFSA and 2 of the 13 lines from worksheet B.
- Adds combat pay to excludable income (Worksheet C) and excludes
it from estimated financial assistance.
Effective 7/1/09.
11. Qualified Education Benefits (529, prepaid, Coverdell)
Corrects legislative drafting error.
- Asset of student if independent
- Asset of parent if dependent, regardless of whether owned by
student or parent.
- Excludes tax-free distributions from qualified education benefits
from need analysis.
- Excludes tax-free distributions from estimated financial assistance.
Effective 7/1/09.
12. Definition of independent student.
- Changes orphan/ward of court to include foster care, and replaces
the until age 18 to be "at any time when the individual is 13
years of age or older".
- Adds emancipated minor and legal guardianship.
- Adds unaccompanied youth (homeless child or youth)
and unaccompanied youth (at risk of homelessness and self-supporting)
- Allows a financial aid administrator to rely on a dependency
override made by another financial aid administrator during the
same award year.
Effective 7/1/09.
13. Miscellaneous Programs
- Funds Upward Bound from 2008 through 2011. Does not restrict
use of funds.
- Retains the Teach Grants, but eliminates the bonus grants.
- Retains the College Access Challenge Grant Program, but
limits it to two years, not the originally proposed five years.
- Investment in HBCU and HSI. $510 million total in 2008 and 2009,
instead of over five years, with an additional $10 million for
Native American Serving Nontribal Institutions.
- No new federal contribution for Perkins Loans. Date postponed
for return of late Perkins collections to 9/30/2012.
- Omits the Kermit Provision (encouraging colleges to go green).
- Omits provision encouraging exploration of using income tax
withholding system to make income contingent repayment payments.
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Mark Kantrowitz
Publisher, FinAid
Director of Advanced Projects, FastWeb
Author, FastWeb College Gold
FinAid Page LLC
PO Box 2056
Cranberry Township, PA 16066-1056
Tel: 1-724-538-4500
Fax: 1-724-538-4502
Email: mkant@finaid.org, mkant@fastweb.com
www.fastweb.com www.finaid.org www.collegegold.com